TheStreetSweeper releases an investor alert regarding Pulse Biosciences (PLSE).
Second Sight Medical Product (EYES) is one example. The firm managed their initial public offering three years ago at $17 per share. Shares jumped out at $21 but have declined more than 90% to ~$1.20:
So Pulse is the same company it was on that warm, sunny day last May 18 when the stock first began trading on the Nasdaq.
Pulse has been digging the hole deeper and deeper because new medical device companies simply get doggone expensive just swaying in place. Much less stepping ahead.
(Source: Company SEC filing, TheStreetSweeper)
So, thanks primarily to its IPO, the company had around $16 million in cash in December. If you add the $5 million made from the February private stock sale and subtract current cash burn, there's enough for a while.
But the real money-gobbling begins if the company ever progresses. Then it would have to add massive costs for everything from clinical trials, to making the device to marketing and distribution.
To get an idea of the money Pulse would need to approach the human trial stage, let's consider some rivals...
*3. Competition: Clobbering Pulse
Research and development is the lifeblood of all the biotechs. But Juno spent 18 times more than Pulse on research and development. And Kite spent over 118 times more on R&D.
(Sources: SEC filings, Marketwatch, TheStreetSweeper)
Clearly Pulse will have to spend much more to catch up with Juno and Kite. And those two have barely stepped on the gas toward the accelerated spending required to fuel a biotech.
But even spending hundreds-of-millions on research and development can't assure success or profit.
These companies are doing much better than Pulse as far as revenue and cash. But despite their experience, Juno and Kite are still very risky and sickly, too.
(Sources: Company SEC filings, year's end cash, TheStreetSweeper)
Similarly, Pulse revenue, cash, earnings and R&D budget fall far short of a competitor in the targeted wart and dermatology field, Syneron:
Biotech carries no guarantees, other than you can bet on burning plenty of cash chasing a product that may or may not ever become reality.
Case in point: Juno shares recently declined again when the company announced it would not progress its cancer treatment due to "unfortunate and unexpected toxicity." The stock reeled late last year after several patients died during clinical trials.
So, how would a company like Pulse fund such large risk-filled costs and any of the more massive expenses waiting ahead?
Ah, that's where the average stockholder could get run over ...
So if Pulse tries to do anything but stand still, the most likely funding options are a debt-for-stock deal or selling more stock.
Both alternatives mean current stockholders have a pretty fair risk of watching their stock get watered down. That's nothing new. About 4.5 million shares that have been under the 12-month-post-IPO lockup will soon be released.
That stock can be sold in the first week of May.
Especially if sold en masse, those millions of shares could significantly water down shares owned by existing stockholders. The company warns that it will continue to issue and dilute:
"...we expect to finance our future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements.
"If we raise funds by issuing equity or equity-linked securities, the ownership of our stockholders will be diluted...".
It's like billionaire investor Warren Buffett once said:
"Anytime a company becomes a serial issuer of stock, they don’t think much of their stock.
"And they’re using it as an over-valued currency. And almost always something bad comes from that,” said Mr. Buffett.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in PLSE and stand to profit on any future declines in the stock price.
* Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to [email protected]